A decision from the U.S. District Court for the Middle District of Pennsylvania should serve as an important reminder for landowners who, in the midst of ongoing oil and gas development, may resort to the courts to confirm their ownership interests. The case is Pennsylvania Game Commission v. Thomas E. Proctor Heirs Trust, 1:12-CV-1567 (M.D.Pa. July 24, 2014).
This case involved a dispute as to ownership of minerals underlying approximately 2,500 acres in Sullivan County. In 1895, Thomas Proctor and his wife, Emma Proctor, conveyed the property to the Union Tanning Co., reserving for Thomas Proctor, his heirs and assigns, “all the minerals, coal, oil, gas or petroleum found in or under the surface” of the property. Shortly thereafter, he died; he was survived by his wife and their four children. In 1908, the Sullivan County treasurer sold the property at a tax sale due to unpaid taxes to C.H. McCauley Jr. At the time of the tax sale, the land was unseated, meaning that the mineral estate was not assessed separately from the surface estate. In 1910, McCauley deeded the property to Central Pennsylvania Lumber Co., which in 1925 deeded the property to the Pennsylvania Game Commission, the eventual plaintiff.
PGC considered itself the rightful owner of the mineral estate, but according to PGC, in 1980, Thomas Proctor’s heirs purported to convey their mineral interest in the mineral estate to the Thomas E. Proctor Heirs Trust. Further, the trust made competing claims of ownership to the mineral estate and also attempted to convey the same. Given these competing interests, PGC initiated litigation to quiet title.
Under Pennsylvania law, an action to quiet title is governed by Pennsylvania Rule of Civil Procedure 1061, which establishes multiple grounds upon which an action to quiet title may be premised. In this case, the question was whether PGC had sufficiently pleaded a claim under any provision of Rule 1061. Specifically, the trust moved to dismiss, arguing that PGC did not sufficiently plead a claim to quiet title, or in the alternative, for a more definite statement regarding PGC’s title derived from the tax sale. The court adopted entirely the report of a magistrate judge recommending that the trust’s motion to dismiss be granted in part with respect to one of PGC’s proffered theories for its action to quiet title.
At issue was whether PGC sufficiently pleaded a claim pursuant to Rule 1061(b)(2). This provision of Rule 1061 requires that the remedy of ejectment be unavailable to the plaintiff. As the court noted, ejectment is a remedy for a plaintiff who does not possess land but has a right to possess it, against a defendant who has actual possession. As such, the court observed that PGC’s possession is a “jurisdictional prerequisite” to its action to quiet title. To this end, PGC argued that the mineral estate could not be exclusively possessed because the minerals were located in the ground. The court rejected this argument, stating that Pennsylvania courts have regularly stated that minerals can be possessed when they are “in grasp.” For over 100 years, Pennsylvania courts have observed that “the one who controls the gas—has it in his grasp—is the one who has possession in the legal as well as in the ordinary sense of the word,” as in Westmoreland Natural Gas v. DeWitt, 18 A. 724 (Pa. 1889). This can occur, for example, when a well is built and the underlying minerals are extracted or removed.
Here, PGC never alleged that the minerals were not “in grasp.” Specifically, PGC never alleged that it had not extracted or attempted to extract the minerals. Similarly, the complaint was devoid of any facts suggesting that it had been denied or prevented from accessing the mineral estate. As such, PGC failed to allege that the minerals were not “in grasp” and, as a result, the court held that it did not satisfy the out-of-possession element required under Rule 1061(b)(2).
PGC’s action to quiet title was not doomed, however. Although the court dismissed PGC’s claim under Rule 1061(b)(2), the court found that PGC sufficiently pleaded its claim under other provisions of Rule 1061. Specifically, Rule 1061(b)(3) permits an action to quiet title, but possession is not a jurisdictional prerequisite, under this subsection. Likewise, Rule 1061(b)(4) permits an action to quiet title to establish possession of land sold at a judicial tax sale. In this case, the court found that PGC sufficiently pleaded its current ownership and traced its title back to the 1908 tax sale. The trust attempted to argue that PGC failed to establish prima facie title in the mineral estate because it was not separately assessed before the tax sale. The court rejected this argument, stating that under Pennsylvania law, when a mineral estate is severed, the mineral owner has a duty to notify the assessor to this effect, and the failure to do so enables a purchaser of the surface property at a tax sale to acquire good title to the minerals. Here, the mineral estate was severed when it was reserved to Thomas Proctor’s heirs. Those heirs, according to the court, must have failed to inform the assessor of this fact, and thus, when the surface property was purchased at the tax sale, the purchaser (McCauley) acquired the mineral estate as well.
Accordingly, PGC sufficiently pleaded its ownership to the mineral estate derived from the 1908 tax sale. For the same reasons, the court also denied the trust’s claim for a more definite statement as to what interest was conveyed at the tax sale. Under the rule previously stated, only the assessed real estate transfers at a tax sale. Insofar as the mineral estate was not separately assessed, it was duly transferred along with the surface estate at the time of the 1908 tax sale. As such, a more definite statement was unnecessary.
This ruling presents several important reminders for owners of mineral interests. First, a party seeking to quiet title pursuant to Rule 1061(b)(2) should be cognisant of the “jurisdictional prerequisite” required under Rule 1061(b)(2). In essence, the plaintiff must allege facts demonstrating that the underlying mineral estate is not “in grasp.” Exactly how the courts will apply this old concept is unclear. While this requirement is not necessarily fatal to an action to quiet title, it could nevertheless frustrate a plaintiff’s efforts. Second, this case should also remind landowners to review and assess their chain of title. Insofar as their chain of title involves a tax sale or a severance of the mineral estate, they should consider whether they are exposed to a competing claim of ownership.
Oil and gas development can present unique and complex issues that can be intimidating and challenging. At Houston Harbaugh, P.C., our oil and gas practice is dedicated to protecting the interests of landowners and royalty owners. From new lease negotiations to title disputes to royalty litigation, we can help. Whether you have two acres in Washington County or 5,000 acres in Lycoming County, our dedication and commitment remains the same.
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